The Lagos zone of the Tax Appeal Tribunal (TAT) recently issued a significant ruling in the case involving MTN Nigeria Communications Plc (MTN or “the Company” or “the Appellant”) and Federal Inland Revenue Service (FIRS or “the Respondent”). The TAT has ruled that interest and penalty should not apply to additional assessments that the taxpayer has validly objected to within the stipulated statutory period. However, the TAT maintains its position that VAT will apply if services are consumed in Nigeria, irrespective of where the provider is located.

Background of the Case

On 10 May 2018, the Office of the Attorney General of the Federation (OAGF) issued a report on its investigation into MTN’s Forms A and M transactions, covering 2007 to 2017. In its revised report of 20 August 2018, the OAGF alleged that the Company had outstanding liabilities in respect of import duty and Value Added Tax (VAT) amounting to ₦242.2 Billion (Two Hundred and Forty-Two Billion, Two Hundred Million Naira) (Form M -Visible transactions) while the liabilities relating to VAT and Withholding Tax (WHT) amounted to $1.284 Billion (One Billion, Two Hundred and Eighty-Four Million Dollars) (Form A-Invisible transactions).

In mid-2020, the Respondent informed the Appellant that it had received the report from the OAGF in respect of the Appellant’s alleged liability to VAT and WHT. The Appellant, together with its tax consultants, held series of meetings with the Respondents to resolve the tax dispute. The Respondent subsequently issued a reassessment but the Company objected to it. However, in the report issued further to the Appellant’s objection, the principal tax liability was less than the alleged principal tax liability while the interest and penalty imposed by the Respondent was higher. The alleged aggregate VAT liability was based on payments made on offshore training services provided to the Appellant’s employees, satellite capacity managed by the Appellant (transponder services) provided by a non-resident company to the Appellant and software licensing and upgrade transactions. The Company objected to the revised assessment, but the Respondent issued a Notice of Refusal to Amend (NORA).

Dissatisfied with the NORA, MTN filed an Appeal before the TAT seeking that the liabilities be set aside.

MTN’s Argument

The Company submitted that the provision of software licences and upgrades did not qualify as either supply of goods or services for the purpose of VAT, prior to the amendments by the Finance Acts (FA). MTN argued that, for the years under review, the applicable tax laws were the provisions of the VAT Act prior to any amendment effected by the FA 19 and subsequent amendments. Thus, the amendments made by Sections 33 & 46 of FA 19, and Sections 40 & 41 of FA 20 were not applicable in determining the rights of the parties. Furthermore, the Appellant maintained that those amendments suggest that transactions of that nature were not covered under the VAT Act 1993 because if they were included, such amendments would not have been necessary. MTN further stated that tax legislation ought to be translated strictly in line with literal rule of interpretation.